Bowman Consulting Group Ltd. quarterly report, Q1 FY2022

Bowman Consulting Group Ltd. — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022. Unaudited results are compared with Q1 2021. Unless otherwise stated, amounts are in U.S. dollars; financial statement amounts below are rounded to millions.

Business context

Bowman provides engineering and related professional services across building infrastructure, transportation, power and utilities, and other markets. It reported as a single operating segment and operated more than 40 U.S. offices. Revenue is primarily from lump-sum contracts, where estimated costs to complete affect revenue recognition and profitability.

Financial performance and liquidity

Metric	Q1 2022	Q1 2021
Gross contract revenue	$52.5 million	$31.8 million
Net service billing (non-GAAP)	$47.7 million	$28.9 million
Income from operations	$1.8 million	$1.5 million
Net income	$1.5 million	$1.0 million
Net income attributable to common shareholders	$1.2 million	$0.9 million
Basic and diluted EPS	$0.12	$0.17
Adjusted EBITDA (non-GAAP)	$7.4 million	$4.1 million
Adjusted EBITDA margin on net service billing	15.5%	14.2%
Net margin, as reported by the company	2.8%	3.1%

Revenue increased 65.1%; acquired businesses contributed $7.6 million of the $20.7 million increase. Organic revenue grew 43.6%.
Contract costs rose 56.8% to $25.4 million. Operating expenses rose 77.5% to $25.2 million, including higher overhead, staffing, public-company costs, depreciation and amortization, and stock-based compensation.
Operating cash flow was $2.4 million, compared with $45,000. Accounts receivable growth was a significant use of operating cash.
Cash and equivalents were $34.9 million at March 31, versus $20.6 million at year-end. The quarter-end balance sheet showed current assets of $97.4 million and current liabilities of $37.4 million.
Notes payable totaled $12.0 million, including $4.6 million current. Capital lease obligations totaled approximately $16.2 million, including $5.5 million current. The $17.0 million revolving credit facility had no outstanding balance; Bowman reported compliance with its financial covenants.
Financing cash flow included $15.5 million of net proceeds from the February stock offering. The company also repurchased $1.0 million of shares, principally for employee tax withholding.

Changes versus the prior comparable period

Revenue mix shifted substantially toward lump-sum contracts: approximately 95% of gross contract revenue versus 70% in Q1 2021. Time-and-material revenue fell to approximately 5% from 30%.
Building infrastructure revenue rose 84.3% and power and utilities rose 51.4%; transportation revenue decreased 3.7%. Building infrastructure represented 73.9% of Q1 revenue.
Net income increased, but EPS declined from $0.17 to $0.12 as weighted-average basic shares increased from approximately 5.1 million to 9.9 million.
The effective tax rate shifted to an 8.8% benefit from 28.0% expense, primarily reflecting tax effects associated with restricted stock vesting, research and development credits, and projected limits on executive-compensation deductions.
Backlog increased 3.6% to $173.0 million from $167.0 million at December 31, 2021. Remaining performance obligations were approximately $152.5 million, with about 99% expected to be recognized within 12 months.

Outlook, commentary, risks and unusual items

Management gave no specific numerical full-year revenue or earnings guidance. It expected building infrastructure to remain the largest revenue market in 2022 and cited opportunities in transportation, utilities, renewable energy, and water resources.
On May 4, 2022, after quarter-end, Bowman completed its acquisition of McMahon Associates for approximately $18.4 million: $7.5 million cash, $3.4 million in promissory notes subject to adjustment, and 476,796 restricted shares. Management expects the deal to expand transportation capabilities and diversify revenue.
In Q1, Bowman acquired Perry Engineering for approximately $0.9 million in cash, stock, promissory note and assumed liabilities. The purchase-price allocation remained preliminary.
Management said available cash, operating cash flow, and borrowing and lease facilities were expected to fund projected requirements and strategic initiatives for the next year. It also expected to use a meaningful portion of liquidity and capital resources for potential acquisitions.
Adjusted EBITDA included $3.2 million of non-cash stock compensation add-backs and $0.1 million of acquisition expenses. Unvested stock awards were expected to generate $26.8 million of future expense, subject to vesting and other conditions.
The company said it had not experienced material financial distress from COVID-19, but the pandemic’s future effects remained uncertain. Disclosed risks include hiring and retaining qualified staff, labor and healthcare costs, inflation and interest rates, client demand and collections, contract execution, government funding, seasonality, competition, and acquisition integration and financing.
Bowman reported no litigation expected to have a material adverse effect, effective disclosure controls, and no material change in internal control over financial reporting.

Important facts for investors to verify

Whether organic growth and acquired revenue contributions remain consistent with the company’s expansion strategy, especially given acquisition-related integration and financing needs.
Whether accounts receivable growth converts to cash and whether operating cash flow can support ongoing growth and acquisition spending.
How the shift toward lump-sum work affects project estimates, contract profitability, and margins.
The impact of equity issuance, stock-based compensation, and unvested awards on dilution, EPS, and future expenses.
The final purchase accounting and financing terms for Perry and McMahon, and McMahon’s subsequent contribution to revenue and cash flow.
Whether the company maintains credit covenant compliance and sufficient liquidity as debt repayments and lease commitments fall due.